NZ remains in the ‘elite group’ of most competitive economies

If I have to choose countries to invest money in the coming five to 20 years, I will choose the top 10 or top 20 in the list.

Prof Arturo Bris, IMD World Competitiveness Center

New Zealand is number 16 out of 63 economies ranked for competitiveness by the IMD Business School in Switzerland.

New Zealand has retained this position since 2016.

Hong Kong takes the top spot for the second year in the annual rankings compiled by the IMD World Competitiveness Center, a research group at IMD business school.

Switzerland and Singapore came in second and third, with the USA ranking fourth, its lowest position in five years and down from third last year. The Netherlands completed the top five, jumping up from eighth last year.

The IMD World Competitiveness Center has published the rankings every year since 1989.

“The results show New Zealand is a very competitive economy,” says Prof Arturo Bris, director of the IMD World Competitiveness Center.

“But we should not confuse competitiveness with competition,” says Bris, who joined Dr Christos Cabolis, chief economist of the IMD World Competitiveness Center, in a web conferrence to discuss the 2017 report.

The competitiveness of a country does not refer to its ability to compete with other countries, but the ability of the country to facilitate an environment in which enterprises can generate sustainable value, explains Bris, at the forum organised by Kerridge & Partners in Auckland.

Sustainable value creation is the long term capacity of enterprises to remain profitable, create fulfilling jobs, while minimising the environmental impact of their activities, he adds.

“It is paramount for a competitive economy that companies remain profitable.”

Thus, the report looks at four competitiveness factors: government efficiency, economic performance, infrastructure and business efficiency.

“Countries collaborate and then become competitive, that collaboration is called trade,” says Bris.

The IMD ranking highlights the fact that as economies collaborate and the world becomes more global, the competitiveness of all economies improves at the same time.

He cites: “New Zealand will not be more competitive at the expense of another country. It will become competitive together with other countries.

“For us, it is extremely important that competitiveness is not competition. It is managing input to generate outputs for the productivity of the country.”

The centre bases the ranking on 260 indicators, about two thirds of which come from ‘hard’ data such as national employment and trade statistics; and a third from more than 6,250 responses to an Executive Opinion Survey that measures the business perception of issues such as corruption, environmental concerns and quality of life.

The quality of the data is extremely important, and the listing covers only economies where they can get high quality data. Thus, some countries from Africa, Latin America, Eastern Europe and Asia were excluded.

Dr Christos Cabolis explains the inclusion of the executive survey in the ranking.

The hard data tells us what happened the year before, says Cabolis. "The perception data answers in the last two months (February to April) reflect what people believe about the future."

Bris says the top 10 in the list are the most promising for the long-term in the world economy.

“If I have to choose countries to invest money in the coming five to 20 years, I will choose the top 10 or top 20,” says Bris.

Bris says when looking at economies, it is important to ask three questions:

First, does the country have a good government that enforces good regulation, is financially healthy, and one that is transparent and not corrupt?

Second, does the country have a strong private sector, meaning the companies generate jobs, [are] managed by executives who have the right values, are entrepreneurial and socially responsible?

Third, does the country have good infrastructure (roads, airport and educational system)?

“If the answer to most is yes, you have a competitive country."

Cabolis says essentially the economies that have an open mind and a positive attitude always perform much better with respect to competitiveness. “In this case, New Zealand performs well."

Cabolis explains that infrastructure also includes technology presence.

In the last few years, technological innovation completely changes the way people do business with the government and the way society behaves.

"It is not only important to possess a particular technology. It is important to use technology and extend the technology to new practices to increase efficiency," he says.

He says disruption impacts the business environment, industries and government.

“You can’t predict disruption,” he says. “We think the economies that are able to adopt [technology] very easily and are characterised by agile businesses are most probably better in handling disruption.

He says they try to introduce these concepts in the new competitiveness ranking.

Assessing the scientific and technological performance is crucial in recognising the country’s standing in the digital transformation currently undergoing in the worldwide economy.

Digital competitiveness is defined as the capacity of an economy to adopt and explore digital technologies leading to transformation in government practices, business models and society in general.

The competitiveness of a country does not refer to its ability to compete with other countries, but the ability of the country to facilitate an environment in which enterprises can generate sustainable value

Mind the gap

These factors allow the country to be ready for future changes, says Cabolis.

New Zealand’s ranking dropped a bit in overall digital performance. It ranks number 14, down from 10, in terms of digital competitiveness.

But Bris notes, it is “extremely well in a position to be digitally competitive”.

He points out business agility for New Zealand has declined for significantly over the past three years.

IMD figures show New Zealand's business agility ranking was 16 in 2015, 14 in 2016, and 26 in 2017.

Business agility includes companies’ use of big data. For instance, NZ ranks number 34 in use of big data and analytics.

At the same time, other countries are catching up fast on digital technology.

For countries that are stacked above New Zealand in the ranking on digital competitiveness, digital goes beyond having an online presence, says Cheewei Kwan, partner at Kerridge & Partners.

“In fast moving economies, digital is truly integrated into the business,” says Kwan, in the panel discussion following the presentation by Bris and Cabolis. “It is part and parcel of business strategy going forward. I don’t think we are there yet.”

He believes it comes back to the idea that “we [New Zealanders] are still comfortable in this part of the world, with 3 per cent growth.”

But compared to fast moving economies in Asia and other parts of the world, over time, we are going to be further and further behind in the curve, he says. “We have to do something quick.”

In the case of big data, companies can extract value out of the massive data available using machine learning, says another panelist, David Rae, former head of investment analytics at NZ Super Fund, and now board member of Longroad Energy Holdings.

Rae says he used to sit on the board of an organisation that had masses of data on its customers. At one point, the IT department said they were running out or server space and would like to delete the customer records.

“I said, over my dead body. [That data] is so valuable.”

How can you provide better service to customers, how do you build a relationship with customers and give much more targeted offerings to individuals? These will come from the use of big data, he says.

The global perspective

Bris says the indicators that stood out among the most improved countries are related to government and business efficiency as well as productivity.

“These countries have maintained a business-friendly environment that encourages openness and productivity,” he says. “If you look at China, its improvement of seven places to 18th can be traced to its dedication to international trade. This continues to drive the economy and the improvement in government and business efficiency.”

The bottom of the table, meanwhile, is largely occupied by countries experiencing political and economic upheaval.

“You would expect to see countries such as Ukraine (60), Brazil (61) and Venezuela (63) here because you read about their political issues in the news. These issues are at the root of poor government efficiency which diminishes their place in the rankings,” says Bris.

For the first time this year, the IMD World Competitiveness Center is publishing a separate report ranking countries’ digital competitiveness. Indicators for technology and scientific infrastructure are already included in the overall rankings.

The new Digital Competitiveness Ranking, however, introduces several new criteria to measure countries’ ability to adopt and explore digital technologies leading to transformation in government practices, business models and society in general.

At the top of the ranking is Singapore, followed by Sweden, the USA, Finland and Denmark. “There is no doubt that supportive and inclusive government institutions help technological innovation,” says Bris.

“Singapore and Sweden have developed regulation that takes advantage of the talent they have by adopting, for instance, regulation that facilitates the inflow of overseas talent which complements the locally available pool.

"The US invests more in developing its scientific concentration and generating ideas but the country has a history of government support for technological innovation. This shows that in digitally competitive countries, the government must facilitate the adoption of new technologies.”

Many of the top 10 digitally competitive countries are also found at the top of the overall rankings, with some exceptions.

Luxembourg, number eight in the overall list, ranks only 20th in the digital list. Finland is 15th in the overall list, but 4th in the digital ranking. “Of paramount importance in the digital ranking are issues related to how adaptive and agile economies are when faced with technological change,” says Bris.

The bottom five are Indonesia, Ukraine, Mongolia, Peru and Venezuela. Bris says: “One thing the results highlight is that these countries not only have low rankings in terms of talent but they don’t invest in developing whatever talent they have.”

“There is a relation between the lack of talent and training with a lack of business agility,” he adds. “Education and knowledge production are the key.”

A panel discussion followed the IMD presentation: Bruce Aitken, director at Methanex; David Rae, former head of investment analytics at NZ Super Fund and now board member of Longroad Energy Holdings; and Cheewei Kwan of Kerridge & Partners.

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